Improving a Good Credit Score to Make it Great

There’s no question, in many situations a business owner’s personal credit score has an impact on his or her ability to get a small business loan. While your personal credit score is not the best proxy of the health of your business and is only one of many factors we consider to evaluate your business’ creditworthiness, it’s prudent to work toward building the best credit score possible. And, while we often talk about rebounding from a credit score that has taken it on the chin, we seldom talk about taking a good personal credit score and making it great.

The quest for the “perfect” credit score is a lot like trying to catch a unicorn—it’s just not going to happen. That’s not to say, however, that you can’t take a score in the 700s and push it up past 800.

I recently stumbled upon a post on Business2Community that had some good advice in this regard. Here are five tips for going from good to great I thought were worth paying attention to:

1. It starts with credit utilization: 30 percent of your credit score is a comparison of the amount of credit you use compared with the amount of credit you have available. Many experts agree you should try to keep your credit utilization below 50 percent at any given time.

For example, that’s not to say you should completely pay off the balance on your credit cards at the end of every payment cycle (if your goal is to push your score higher). Maintaining a small credit balance every month can help nudge your good score up—provided you’re never late and never miss a payment.

2. Wisely use the credit you have: Skillfully using the credit you have while keeping your credit utilization below 50 percent can require a thoughtful approach, but doing so demonstrates to the credit bureaus you are able to responsibly use the credit you have. In other words, you need to use your credit to improve you score. Simply having credit available isn’t enough you need to use it, pay it off, and use it again.

3. Don’t apply for credit you don’t need: With all the credit offers that come through the mail—everything from credit cards, department store cards, to other credit, remember that every application you submit lowers you credit score. Access and use the credit you need, but no more.

What’s more, typically don’t close credit accounts you may already have. Remember, 30 percent of your score is a comparison of the credit you have available vs. the credit you use. So closing accounts reduces the amount of credit you have available and increases the percentage of credit you utilize. Additionally, the age of your credit accounts also plays into the picture, so it makes sense to keep older credit accounts active rather than closing them.

4. Make sure you have a good credit mix: Responsibly using your credit cards isn’t the only way to improve your credit score. Your mortgage, auto loan, or other installment-debt also plays a role. Mixing different types of credit tells the credit bureaus, and potential lenders, that you are able to successfully manage several different types of debt.

5. Be patient: While making timely payments and demonstrating you can responsibly use credit will improve your score over time, it likely won’t happen overnight. Slow and steady wins this race. While you wait, it’s a good idea to regularly monitor your credit score and credit report to make sure it’s accurate and to see how your good credit practices are taking your score from good to great.

Taking your credit score from good to great might take a little extra thought and some extra work, but it can help put you in a position to have lenders roll out the red carpet when you need extra capital to fund an expansion project or meet some other cash flow need.

I write about small business and small business finance as Editor for OnDeck. With over 30 years in the trenches of small business, I’m a Main Street business evangelist, author, and marketing veteran that makes the maze of small business lending accessible by weaving personal experiences and other anecdotes into a regular discussion of one of the biggest challenges facing small business owners today.

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Loans Subject to Lender Approval. Depending on the state where your business is located and other attributes of the loan, your business loan may be issued by Celtic Bank, a Utah-Chartered Industrial Bank, Member FDIC. Your loan agreement will identify the loan issuer prior to your signing.